Leth: Court Rules Out Francovich Claim on the Basis of the Environmental Impact Assessment Directive

The facts of the Leth case are relatively simple. Ms. Leth bought a house close to Vienna-Schwechat Airport. However, following her purchase of that property, several works were carried out on the airport, most probably increasing the use and thus noise it produced. Probably much to miss Leth’s disliking, it further turned out that many of these works were carried out without any environmental impact assessment. The reason for this absence of an environmental impact assessment was a belief on the part of the Austrian authorities that no such assessment was necessary on the basis of the national laws implementing the Environmental Impact Assessment Directive (Currently codified in the EIA Directive). This is a widely held belief on the part of authorities that prefer executive action over cumbersome procedures that are time-consuming and costly. However, often this belief is the result more of a desired outcome than a correct interpretation of the EIA Directive, making this one of the most frequently invoked directives in EU environmental law. Indeed, significant aspects of direct effect have been established and refined on the basis of cases turning on the EIA Directive (think of Kraaijeveld and Wells).

This Directive essentially requires an environmental impact assessment for large projects. Such an assessment should take place before so-called ‘development consent’ is given, allowing the decision on development consent to be taken with all the relevant information on the environmental effects. Leth and myriad other cases, however, show that in many instances the competent authorities prefer blissful ignorance over a well-informed decision.

One of these cases is the Wells case, in which the Court shed some light on the boundaries of direct effect in triangular situations, where the Member State authorities have to deal with two private parties (typically a permit holder and someone who objects to the permit on the basis of EU environmental law). The Wells case is furthermore interesting because the Court held that a failure to comply with the EIA Directive on the part of the competent authorities triggers a duty of sincere cooperation for the national judiciary. This could result in the national court revoking or suspending the consent decision or alternatively awarding compensation for the harm suffered. This prospect of Francovich-liability for breaches of the EIA-Directive is probably what inspired Ms. Leth to claimed damages before the Austrian civil court in order to compensate the devaluation of her property.

Following several years of judicial procedures, the Austrian Supreme Court made a preliminary reference to the European Court of Justice on two issues, of which the most interesting one concerns whether the environmental impact assessment also serves to protect an individual against pecuniary damages as a result of the decrease in the value of his or her property. In other words, can anyone who suffers pecuniary damages start a successful Francovich procedure against a Member State for violation of the EIA Directive?

The Court first reiterates that individuals have a right on the basis of the EIA Directive to have the environmental effects of a project assessed by the competent services and to be consulted in that respect (para. 32).

It then moves on to restrict the scope of the damage that can be claimed in light of the environmental objectives of the EIA Directive. As a result, the Court distinguishes between the economic damage that is the direct result of the environmental effects and the economic damage that does not have a direct source in the environmental effects (para. 36). Interestingly, the Court explains both categories of damage. The economic damage suffered by Ms. Leth falls in the first category, and is thus eligible for compensation under a Francovich claim on the basis of the EIA Directive, because the value of her house decreased as a result of the increased noise levels (para. 35). Economic damage resulting from a competitive disadvantage, on the other hand, is not covered by the objective of the EIA Directive.

As a lawyer with a ‘shared competence’ in environmental and competition law, I find the latter category sufficiently interesting to warrant a little detour. Firstly, I wonder what kind of competitive disadvantage the Court has in mind here. One example would be the situation in which  works on a competing airport are preceded by an assessment, resulting in extra costs (see the Leipzig-Halle case reported on this blog for airport to airport competition). Since such costs are not borne by Vienna-Schwechat airport, the latter would have a competitive advantage.  These costs cannot be the subject of a Francovich claim on the basis of the EIA Directive that only has a ‘protection legal basis’, such as Article 192 TFEU. In other words: because this directive is not intended to create a level playing field, the damage that companies suffer from an uneven playing field is not covered.

Secondly, I wonder how this would work with an internal market directive. Where the Directive has an internal market legal basis, and would thus have to contribute to bringing about equal conditions of competition, the damage is clearly within the objective of the Directive. However, the question still remains how this would work in relation to an internal market measure that allows for more stringent national implementation, such as Directive 93/13. The preamble of this Directive refers to both the creation of an internal market and the protection of consumers and Article 8 allows for the introduction of a higher level of consumer protection, despite Article 100A (currently 114 TFEU) being the legal basis. It is easy to imagine the competitive disadvantages arising from a more stringent measure in the field of consumer protection, and it would be interesting to see whether companies subjected to such national gold plating will now be able to start a Francovich claim.

Whatever may be of this detour, things are looking good for Ms. Leth, with the reduction of the value of her house covered by the EIA Directive’s objectives. The Court then sets out the well-known three conditions for Francovich-liability: the rule of European Union law infringed must be intended to confer rights on the individual; the breach of that rule must be sufficiently serious; and there must be a direct causal link between the breach and the loss or damage sustained by the individual (para. 41).

Everything continues to look peachy when the Court applies the first of the three Francovich requirements in paragraph 44:

In that regard, it has already been established, in paragraphs 32 and 36 of the present judgment, that Directive 85/337 confers on the individuals concerned a right to have the effects on the environment of the project under examination assessed by the competent services, and that pecuniary damage, in so far as it is a direct economic consequence of the environmental effects of a public or private project, is covered by the objective of protection pursued by Directive 85/337.

But things take a turn for the worse when the Court examines the requirement of the direct causal link and holds as follows:

To that end, the nature of the rule breached must be taken into account. In the present case, that rule prescribes an assessment of the environmental impact of a public or private project, but does not lay down the substantive rules in relation to the balancing of the environmental effects with other factors or prohibit the completion of projects which are liable to have negative effects on the environment. Those characteristics suggest that the breach of Article 3 of the EIA-Directive, that is to say, in the present case, the failure to carry out the assessment prescribed by that article, does not, in principle, by itself constitute the reason for the decrease in the value of a property.

Here we see the major drawback of the increasingly popular ‘proceduralisation’ in European environmental law. This term was introduced by Maria Lee and refers to legislation that essentially provides for a procedure to be followed, rather than setting a certain level of environmental protection whenever decisions are taken that may affect the environment. The fact is that, at the end of the day, an impact assessment does not guarantee a certain level of environmental protection. The outcome of the assessments that had to be conducted for the works concerning the airport would undoubtedly have shown that noise levels would increase and thus environmental quality would deteriorate. This, however, would not stop the competent authorities from balancing those negative environmental effects against, say, positive economic or employment effects. As a result, development consent could still be given, even after Ms. Leth made her views known.

What then is the future for a Francovich claim on the basis of European environmental law? Could Ms. Leth claim compensation on the basis of the Environmental Noise Directive? This Directive again fails to provide for a certain level of environmental protection and falls squarely in the category of proceduralisation. Ms. Leth would – to borrow the Court’s terminology – have a right to be consulted on the action plans to be drawn up. However, as the Directive remains silent (pun intended) on limit values for environmental noise, there is no standard to be violated. A Francovich claim could thus only work if the Directive provides for such limit values or in another way provides for a certain degree of environmental protection. Unfortunately, such directives are increasingly scarce in European environmental law. Following  Janecek, it is doubtful whether the Air Quality Directives, which do contain limit values, provide for more than a right to drawing up a plan.

3 comments

  1. Laurens Ankersmit

    Thanks for commenting on this case, very interesting outcome and analysis. What I get from the second part of your analysis is that from an environmental protection perspective, this case provides an argument against proceduralisation of environmental law in favour of laying down (minimum) environmental standards. Liability is a huge enforcement instrument and I wonder if and to what extent this case might impact the politics behind this proceduralisation.

  2. Zuzana Vikarska

    Thank you for this case-note!

    The point on ‘proceduralisation’ is then indeed very relevant. Is the review really the same:
    (a) when exercised by an administrative authority, in the framework of EIA, and
    (b) when exercised by a judicial authority in the assessment of “causal link”?

    In principle, I would expect courts to be more generous than administrative authorities. Maybe an administrative authority would have balanced the values and would have given a green light, even if it had known about the possible deterioration of environmental quality. But we don’t know that, because the EIA has not been conducted, the balance between negative and positive effects has not been stricken, the project is simply not legal and damage has been caused.

    Maybe the requirement of EIA is more than just an irritating burden for the ‘developer’. Maybe we could see it as a possibility for the developer to get a “stamp of legality” and thus avoid future claims for damages. And the same applies for a Member State in case of a wrong or missing transposition. (And in the case of Member States, we should also take into account the “estoppel” argument, just like in Ratti, Emmott and plenty other cases.)

    If a “stamp of legality” is not asked for and not given, the project is unlawful in case it hurts the environment. If it then causes damage and if the damage follows from the unlawful act (causal link), Ms Leth is entitled to damages.

    In my opinion, the courts thus get the chance, in the light of Leth, to actually ensure some (minimum) environmental standards.

    (P.S.: When I first read the case, I had a feeling that the main message was: an individual should not profit MORE from the non-existent EIA than he or she would profit from an existing EIA. But now I think, in the light of the reasons above, that a wider judicial protection is not impossible and is actually a good solution, especially in context of the estoppel principle, sort of sanctioning the state for the wrong or missing transposition.)

  3. Pingback: The ECJ giveth and taketh in environmental impact assessment: Incremental projects subject to further EIA scrunity, but with limited scope for compensation | gavc law

Leave a Reply